Friday, June 29, 2012

Markets soar on euro debt hopes

Dow was up 277 & closed at its highs, advancers over decliners a relatively muted 6-1 & NAZ jumped a massive 85 (helped by a 15 rise at Apple (AAPL)).  The Financial index rose 5 to the 197s, erasing most of the losses in May.

The MLP index rose a very big 7 to the 377s (a 6 week high) & the REIT index was up 6 to the 261s (within 3 of its yearly highs).  Junk bond funds were higher & Treasuries pulled back (money used to buy stocks).  Oil rallied but crude posted a deep Q2 loss.  Gold rose sharply but suffered the biggest quarterly drop in 8 years after a dire performance in May & Jun (see below).

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CLQ12.NYMCrude Oil Aug 1284.83 Up 7.14 (9.2%)

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Leaders Grant Bond Market Respite That ECB May Need to Buttress

Photo:   Bloomberg

Euro-area leaders granted immediate respite to the stressed bond markets of Spain & Italy, leaving investors looking to the ECB to provide lasting relief.  By addressing flaws in their bailout programs, moving toward a banking union & trying to break a negative loop between troubled sovereigns & banks, resulted in the biggest rally in Spanish bonds & € (up 2 pennies) this year.  But extending gains may depend on the willingness of ECB policy makers to next week reward political progress with greater crisis-fighting steps of their own. govs & also avoid their past mistake of declaring victory too soon.  The euro’s guardians also agreed to drop a requirement that taxpayers get preferred creditor status on emergency loans to Spanish banks.  Other steps included agreeing to use rescue funds to stabilize markets in certain conditions.  “There is pressure on the financial markets, that cannot be denied,” Chancellor Merkel said.  “There was an interest here to find solutions. My task was to see to it that the solutions respect the procedures and rules that we have.”  Establishing the bank monitor & allowing the bailout fund to recapitalize banks could take “several months or perhaps a year,” she said in Berlin.  Sounds good, but now they have to convert talk into action.  Not so easy.

Consumer spending stalled in May as stagnant wages & slackening employment held back the biggest part of the US economy.  Purchases were little changed after a 0.1% rise the prior month that was smaller than initially reported, according to the Commerce Dept   A lack of jobs may prompt Americans to keep focusing on replenishing depleted nest eggs, hurting sales at retailers.  Economists were cutting forecasts after the figures, indicating the economy slowed further in Q2.  Get ready for drab numbers on the US economy next month.

Consumer Spending in U.S. Stalls as Employment Weakens: Economy

  • William C. Dudley, president and chief executive officer of the Federal Reserve Bank of New York, answers questions during a lunch at the Council on Foreign Relations in New York, May 24, 2012. REUTERS/Andrew Burton
Bill Dudley
Photo:   Yahoo

Federal Reserve officials said they were keeping an eye out for any signs that slowing growth is raising deflation risks but differed on how worrisome sluggish job markets are for modest US economic recovery.  New York Federal Reserve Bank President William Dudley said he had modestly lowered his expectations for inflation in coming months.  He needs to see more information on the jobs market & the unfolding of the European sovereign debt crisis before having a clearer sense of the health of the US economy.  He said employment growth has "slowed considerably of late" as the economy has lost momentum.  "Although some of the current uncertainties will take time to resolve, I can imagine material data on a number of dimensions could become available in the coming weeks and months that could lead me to adjust my forecast further," Dudley told an audience in the Puerto Rico.  "I will be paying particularly close attention to whether domestic momentum and hiring picks up now that the pay-back for the mild winter is over, and whether financial conditions, which are heavily influenced at present by developments in Europe, ease or tighten further," he said.

Fed Officials Eye Darker U.S. Growth, Jobs Picture Reuters

Dow recovered much of its losses in May, but still ended down over 300 in Q2.  It rose almost 800 off its lows in early Jun.  But the rally this week is based on a lot of wishful thinking about the euro bailout.  Sobering data on the US economy has been largely ignored & report cards will be issued shortly.  The first is the jobs report for Jun, next Fri.  YTD Dow is up 750, not bad all considered.

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